Perfect Financial Idiocy

Wednesday 27 September

So, John McDonnell would like to bring all Private Finance Initiatives (PFIs) “in house”; the crowd went wild. It’s not hard to fathom the reaction because PFIs aren’t very popular, nor are they well understood. ABOLISH THE RICH, AAAH! Mr McDonnell was followed by junior ministers suggesting that he hadn’t meant; it; PFIs would just be reviewed. Let’s spread a little bit of ambiguity shall we!

The problem is that whether reviewed or cancelled McDonnell is stuck in a 1960s Hungarian economics textbook, he isn’t asking the right questions. This man is auditioning for the role of Chancellor; custodian of the purse, analyst of the economy. The question shouldn’t be “what economic things do people not like” but instead “what economics things do and don’t work for our economy?”

He stopped short of announcing a free unicorn in every household, and everlasting happiness and glee. That would’ve been silly. The problem is that saying you’re going to cancel PFI is a bit silly too. If he’d have had said “we will cancel/renegotiate/yell at the bad PFIs because they are a drain on the taxpayer” then fine. There are bad PFIs in the same way that there are bad things of anything else; it is right and proper to draw a line and say “no more”. But to cancel all PFIs is to say two things, (1) nobody in government for the past 30 years has gotten anything right at any level, and (2) I don’t care what works, I want what I want.

In respect of point 1, I don’t mean the political imperative, of whether PFI is a good or a bad thing, I mean the calculations and the terms; PFIs had to be cheaper than the government’s own ability to self perform those services to be approved, and also, most required provisions to ensure for example, the PFIs were subject to UK tax, value for money reviews were obligatory or the risk transfer to industry justified the profits. So again, where bad ones have been signed or mistakes have been made then great, cancel them (or something similar). Otherwise, I’d like to believe that our public servants are capable. If they’re not, why do we believe John McDonnell, charmer that he is, is going to fix that?!

Point 2 is the same criticism I have been making of Jeremy Corbyn since his election as leader; he treats the means as ends and ignores the real life impact of his policies on people and the world. I understand the appeal of the Corbyn project (much as I disagree with it), and I understand that people feel disenchanted and frustrated with the political class but that shouldn’t lead to the reductive politics of the lowest common denominator and ignorance.

But don’t these companies make massive profits?! Yes and no. They make profit in the same way that anybody selling anything does, but perhaps unusually PFIs also make large losses especially during start up, and they also take the risks of delivery. Making profit isn’t a bad thing, it is the reward for taking risks (and losses) but also a measure of the hassle, overhead, and work involved in delivery. Whether PFI exists or not those profits will be made, unless the government is doing it all itself; having experienced government services I’m not so sure that’s a good idea.

The thing with PFI is that revenues and costs are fully transparent so people can see the profits; before PFI nobody had a clue. Forgetting actual value for money for a second, one of the real benefits of PFI is the transparency for both government and the public; the cost of providing the service is transparent, in one place, benchmarked and market tested.

So PFIs are wicked?

Of course not, there are problems, and there are bad ones. That doesn’t invalidate the concept and it doesn’t justify John McDonnell’s hectoring.

Fix or cancel the bad ones, improve those that can be improved but let us not cast aside success stories that deliver excellent service and value for the sake of it.

Speaking as a taxpayer, I don’t like ambiguity in economic policy; and I’m not entirely sure that Mr McDonnell isn’t spreading a bit of ambiguity now and wouldn’t continue to do so if he reaches number 11.